Financial And Economic Crisis Assignment Example | Topics and Well Written Essays - 4000 words

Financial And Economic Crisis - Assignment Example sis and policy recommendations from the literature review and data gathered from the World Bank, International Monetary Fund, and other government agencies of countries such as the United States. Analysis of the charts and tables will also be conducted in order to derive evaluations of the causes and effects of the global financial crisis. REVIEW OF LITERATURE The Theory of Financial Liberalization and the Washington Consensus A theory was developed by the academic community as well as by the government of the United States of how to go about making progress in developing countries. This false concept of development was proposed by a term known as the â€Å"Washington Consensus† originated by an economist named John Williamson (1998). Basically, there were ten policy recommended for developing countries but it did not recognise that developing countries had various issues that required various policy solutions. These ten policy propositions are as follows: 1. There is a huge a nd continuing fiscal budgets in developing countries that lead to rising inflation flight of capital and as such governments should minimize them; 2. Subsidies must be decreased or avoided and that government spending must be prioritized towards education, health and development of infrastructures; 3. The tax base should be broad and marginal tax rates should be moderate; 4. The interest rates must be determined by the domestic financial markets. Positive real interest rates should discourage capital flight and increase savings; 5. A competitive exchange rate must be adopted by developing nations which will promote exports by making it less expensive in other countries; 6. The minimization of tariffs and which should not be applied to intermediate goods required in producing exports; 7. Foreign...The paper tells that the subprime crisis in the United States resulted to the financial disaster in the stock market in the United States as well around the world as indicated by country an d regional stock indices as shown in the charts of this study. The resulting stock index in the markets throughout the globe is proof that the U.S. financial crisis had a tremendous impact on the global economy. In addition, the impact of the U.S. financial crisis caused the GDPs and other macro-economic indicators around the world to decrease indicating that these countries were affected heavily due to globalization. In the developing countries such as South Asia, the global crisis hit these poor countries strong as they had barely recovered the shocks of trade problems that resulted from worldwide food and energy price increases. Their current accounts and fiscal balances worsened sharply and inflation surged to unprecedented levels. Furthermore, their dependence on foreign funding has been relatively large. The global crisis worsened their macroeconomic difficulties as sources of funding declined. The global economic slowdown due to the financial crisis would make them further vu lnerable in terms of their export earnings, tourism receipts, remittances and external financing for infrastructure. The reform agenda of the â€Å"Washington Consensus† and multilateral institutions has results which were not satisfactory. As such, there is a need to evaluate countries or institution in terms of its nature and geography and that there is a need to uniquely determine their institutional structure.